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Best-of-breed vs. ERP/SCM:
Which way to go for Supply Chain Collaboration

Thomas Carroll
Director, Product Strategy

August 2002

Best-of Breed vs. ERP/SCM 2

? 2002 Syncra Systems, Inc.

Introduction

In this very conservative IT environment, the issue of selecting best-of-breed technology versus a company’s ERP vendor for new applications becomes even more difficult. On the one hand, the best-of-breed vendor is typically years ahead of what the ERP/SCM vendor can offer. On the other, IT shops want to limit the number of vendors they deal with and limit their integration exposure. When should one be considered over the other? There is new literature appearing that gives a framework for evaluating the strategic fit of IT systems to business processes and then using that information to optimize the IT vendor selection process. Optimized IT Portfolio A recent article in the MIT/Sloan

Technology Review titled “The Dynamic Synchronization of Strategy and Information Technology,” presents the concept of an “IT Portfolio.”1 Central to the concept is that different business processes are more stable than others, and the IT applications to support these differing characteristics should be tailored to the process in question. Figure 1 shows the dynamics of two different business processes. One, for corporate financial reporting, a well-established process, is best made consistent across divisions and can be well served by the older, established ERP players with a focus on consistency and reliability. The other is a newer, more dynamic business process, such as supply chain collaboration, which experiences a rapid rate of change, with multiple standards being promulgated and merged, and requires a very flexible application structure. ERP applications focus on stability of process, not on ability to evolve. They just do not offer the responsiveness required to meet the rate of change of the business process. These newer, rapidly changing processes are where best-of-breed solutions, developed with a flexible architecture on new generation rapid-development platforms such as J2EE, out-shine older, client-server based ERP systems.

Matching Software to Process

A one-size-fits-all IT decision does not optimize the IT infrastructure. Even if a company is an “SAP shop,” selecting SAP should not be the default answer for every business process. For each business process that requires an IT system, the CIO should ask, ‘Is this a stable, industry-standard process or an innovative, rapidly evolving one?’ If the answer is the latter, then sticking with the incumbent ERP vendor is likely not the best choice. “During the last five years, companies have invested more than $300 billion in enterprise systems, often with questionable business returns.”3 Can today’s CIO just continue down that route without careful analysis?

If not ERP, then what?

If the characteristics of the business process lead to the conclusion that the ERP vendor may not be the best selection, then there are three options remaining. The first is to go to a bestofbreed vendor. The second is to custom build the application—either in-house or outsourced. The third is to use a partner’s system. Each has their place, although the second is becoming more rare.

When to Choose Best-of-breed

The systems that really shine for supply-chain collaboration are web-native, best-of-breed solutions that share these characteristics:

• Built on a web-native, zero-client, scalable J2EE technology platform
• Standards-based
• Ability to connect with existing applications via simple interfaces
• Highly configurable to accommodate different collaboration processes
• Ability to rapidly accommodate change
• Proven security and scalability

The key to success of these best-of-breed applications is that they have the reliability and scalability similar to incumbent ERP systems, but with much easier deployment, integration

and connectivity due to the standards-based interfaces, and the ability to quickly accommodate change through built-in configuration options as well as rapid development cycles.

They also have to be securely available to trading partners through corporate Internet firewalls.

Custom Built

For the largest players in an industry, such as a Wal*Mart who can invest tens of millions of dollars into applications such as Retail*Link, this may make strategic sense. They built this application many years before it was available commercially and have clearly gotten a significant strategic advantage from it. And for some early pilots, constructing a simple system based on spreadsheets or an MS-Access database may even be sufficient. However, the scale and security concerns of broad-scale supply chain collaboration applications would make developing the tools in-house daunting. And while custom-built solutions were quite popular in the mainframe client/server days, they are becoming less relevant with the advent of easy-to-integrate, standards-based best-of-breed solutions. According to a PriceWaterhouse Coopers study, “A year ago, 12% of retailers said their enterprise systems were predominantly custom solutions. Within three years, only 1.4% of retailers… expect to remain on a predominantly custom platform.”4

Use Partners’ System

While ERP systems are used within a single company, collaboration systems are unique in that they are used between companies. This opens an option that is not available to any other IT decision, and that is to use your trading partner’s system. This could simply mean using Wal*Mart’s Retail*Link or Target?’s Partners-on-Line extranets. This may work for the smallest companies, but for medium and larger companies with many trading partners, the investment necessary to implement and learn multiple systems is immense; so are the costs of continual management. In addition, there is no consolidation point to put all the data together to get an overall view of the supply chain and do any optimization. Prahalad and Ramaswany make the case in Optimize magazine that the costs and risks of new technology can be dramatically reduced for most participants in the supply chain through common standards and an open-systems approach.5 Companies that don’t take advantage of common platforms waste resources because of redundancy in development and support.

Software Industry Financial Situation

If the strategic alignment of business process and IT platforms isn’t convincing enough, the current IT spending downturn adds additional pressure to look at options other than your incumbent ERP and SCM vendors.

Major ERP vendors report gloomy financials…

• i2 Technologies reported that 2Q02 software license revenues fell 75% from same period last year, and 89% from their best quarter in 4Q00. i2 will slash 30% of its workforce as a result.
• SAP reported software license revenue for 2Q02 approximately 23% lower than the same period last year.

… so they are retrenching, and focusing on core applications…

Renee Ferguson reports in the cover story of the July 22, 2002 issue of eWeek6:

• “…major software makers that once promised end-to-end supply chain software cut back on development.”
• “i2 Technologies Inc., SAP AG and Manugistics Group Inc. each reported gloomy financial news last week and scaled back development efforts as a result. Meanwhile, smaller, nimbler best-of-breed developers… continued to roll out product updates.”
Also, Ronna Abramson reported August 5, 2002 on TheStreet.com that Manugistics plans to shut its offices for a week in September and force employees to take unpaid vacation for the second time this year7. The bottom line of all of this is that these vendors have to focus their more limited resources on their existing applications and little room is left for innovation and footprint expansion.

… making them a poor choice for new applications.

Gartner cautions users about choosing the established ERP vendors:

• “Users should continue to be concerned about i2’s viability until the company can develop a reputation for creating satisfied customers and demonstrate – through support of enterprise requirements – that it is a long-term business partner for SCM buyers. This is a high-risk time for both i2 and its customers… Joint development partners are especially vulnerable…”8
• “R/3 users should not succumb to pressures from SAP to move to mySAP.com…”9 except in specialized situations.

Look at the Record

While many ERP/SCM vendors have long promised supply chain collaboration functionality, the reality has fallen far short, primarily because innovative applications are a poor strategic fit with their existing monolithic platforms. The current economic climate is further reducing the viability to create and support software to cover emerging business processes.

Evolving business processes such as supply chain collaboration are best supported by webnative, standards-based, best-of-breed software solutions following the Prahalad and Krishnan model.

Syncra’s customers are among those who “get it”, and have taken the best-of-breed approach. Even though many of Syncra’s customers are “SAP shops” and many also run Manugistics software, these forward-thinking companies have realized that important innovations like supply-chain collaboration require best-of-breed solutions such as Syncra Xt.
By integrating Syncra Xt with their existing systems, they have discovered how to unlock the value not available through their ERP investments alone.

2002 Syncra Systems, Inc. Syncra Systems, Syncra Xt, Syncra Replenishment Planning, Syncra Demand, Syncra Analyzer are trademarks of Syncra Systems, Inc. CPFR is a registered trademark of the Voluntary Interindustry Commerce Standards Association. All other trademarks mentioned in this document are the property of their respective owners.